Navigating the farm bill

Dr. Bobby Coats, Arkansas Extension Service | Sep 16, 2002

Then I ran the numbers through the Agricultural and Food Policy Center’s web based Base and Yield Update Option Analyzer (BYA). As discussed previously, this is a decision support tool for analyzing the economic consequences of the Base Acre and Payment Yield update options in the 2002 farm bill.

The analysis generated four alternatives for updating base and yield. Alternative B and C were not relevant because soybeans or other oilseeds were not in the enterprise mix.

The following is a risk analysis table, where the average annual government payment was calculated using variable annual rice prices. Annual estimated government payment rates were calculated using 500 alternative price levels for each year. These variable payment rates were used to calculate annual government payments for 6 years. The government payment (includes fixed and counter-cyclical payments) for each alternative for 100 acres of rice under the defined assumptions follows:

Alternative A. Freeze 2002 Base (1) and Yields (5) $15,399

Alternative D. Update Base (4) and Freeze Yields (6) $15,399

Alternative E. Update Base (4) and Yields 70% (7) $16,784

Alternative F. Update Base (4) and Yields 93.5% (8) $16,829

Fixed or direct payments replace production flexibility contract payments (sometimes referred to as AMTA payments). Payment rates for wheat, corn, barley, grain sorghum, oats, upland cotton, and rice are fixed in the 2002 Farm Act. Soybeans, other oilseeds, and peanuts are also covered under new rules established in the 2002 Farm Act.

Counter-cyclical income support payments are a new program. This program was developed to provide an improved counter-cyclical income safety net to replace most ad hoc market loss assistance payments that were provided to farmers during 1998-2001. Payments are based on historical production and are not tied to current production.

The following table does not include risk analysis, but rather average annual government payments calculated assuming fixed rice prices. Prices used for the analysis are either the default-projected prices provided in the input screens or the producer’s projected prices. Payments include both fixed and counter-cyclical payments. Note that Alternative F, using this analysis with all its assumptions, gives the greatest projected government payments.

Alternative A. Freeze 2002 Base (1) and Yields (5) $15,535

Alternative D. Update Base (4) and Freeze Yields (6) $15,535

Alternative E. Update Base (4) and Yields 70% (7) $16,951

Alternative F. Update Base (4) and Yields 93.5% (8) $16,997

The next table shows average annual government payments assuming a price for rice that does not trigger a counter-cyclical or safety net payment. Note: This example represents the lowest possible government payment.

Alternative A. Freeze 2002 Base (1) and Yields (5) $9,127

Alternative D. Update Base (4) and Freeze Yields (6) $9,127

Alternative E. Update Base (4) and Yields 70% (7) $9,127

Alternative F. Update Base (4) and Yields 93.5% (8) $9,127

The final table shows average annual government payments assuming a price for rice that would result in the maximum counter-cyclical payment. Note: This example maximizes government payments to the producer. Thus, the producer receives a maximum counter-cyclical payment along with his fixed payment.